愛依斯電力 (AES) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AES corporation first quarter earnings conference call. During the presentation all participants will be on a 'listen-only' mode. Afterwards we will conduct a question and answer session. At that time, if you have a question please press the 1, followed by the 4 on your telephone. As a reminder, this conference is been recorded on Thursday April 26th, 2002. I would now like to turn the conference over to Mr. Dennis Bakke, President and Chief Executive Officer of AES Corporation.

Good morning everyone. With me this morning is Kenneth Woodcock and Roger Sant and then the four COOs - John Ruggirello, Stuart Ryan, Barry Sharp and Paul Hanrahan. During the short time since we announced this group to help lead this company, it has greatly enhanced our management, it is working well, and it has been very helpful to me and to the group managers and the entire company. As part of our continuing transition to this new organization that we announced in February, I have asked Barry to host all the earnings calls from here on. Non-earnings calls will likely be lead by one of the other COOs - I think I mentioned that when we announced this plan. That will continue. I plan to be available for questions and also to participate proactively from time-to-time, especially on the discussion of corporate strategy, major special initiatives, and shared values. We welcome all the new investors who have joined us and added significantly to holdings and we are thankful for those who stayed with us during this time. You are joined by a very large group of shareholders inside the company who are in hope with you, equally expectant about the future of AES. We think the quarter turned out very very well beating GAAP and proforma estimates with our liquidity improving rapidly and we are pleased. Before turning to Barry, sometimes in times like this we forget the big picture. I just want to make three points about the company. AES is a large, growing, diversified, profitable global power company with $40 billion of real assets and real cash flow. Simply put, we want to be one of the beast in making and selling electricity worldwide. Second, AES continues its drive to be a great operating company especially in difficult places profitably delivering low-cost, safe, clean, reliable electricity. Finally, AES's future is built around a long tradition of financial success and world-class operations, increasing financial strength to reducing debt and increasing liquidity, an opportunistic and creative development of new business, and finally a strong adherence to the unique set of unchanging shared values and principles. I will turn it to Barry now to go through the quarter results.

Thanks Dennis. What I like to do today is spend a little time on the P&L. You will notice that for those who have the press release or have access to it, that we added some additional information this quarter including description of the operating results by segment as well as the balance sheet, which hopefully is helpful information. I will spend a little time on cash flow and liquidity and then finish up with a few of our accomplishments and milestones during the quarter. We had a very strong quarter and we are proud of what we achieved in what was a fairly difficult business environment over the course of the quarter including adverse weather conditions, political [uncertainty] and instability in some portions of South America and some low energy prices in emerging markets. On a consolidated basis, first quarter revenues were $2.7 billion. That's up 9% from $2.5 billion in the first quarter of 2001. It's important to remember that 2001 results do include the pooling of IPALCO that was acquired at the end of the first quarter, and in 2002, we had into our consolidation Electropaulo as we gained control over that in February as we completed the swap for [_____] with [[EDF]]. As we go around the world, our revenues were distributed about 35% in North America, 15% in the Caribbean, South America 28%, Europe and Africa 17%, and Asia was 5%. The shift from previous period is primarily towards South America due to the contribution and consolidation of Electropaulo. Overall, the gross margin improved 14% to $729 million. That's 27% of sales for the first quarter of 2002 and is up from $638 million in the previous year and a margin percentage of 26% of sales. On a geographic basis the margin was generally consistent with the revenue numbers again shifting slightly to South America given the addition of Electropaulo. As a result, our after-tax profits with an estimated tax rate for 2002 of 33%, net income from continuing operations were $194 million and $0.36 a share for the first quarter as compared to $231 million and $0.43 per share in 2001. I will spend a little bit of time going through four business segments. As you know they are contract generation, large utilities, competitive supply business, and group distribution. On an earnings before tax basis, those businesses contributed $419 million for the first quarter of 2002 as compared to $490 million during the same period last year. In the contract generation business, revenues were $641 million and that represents just a little under a quarter of our revenues for the quarter from that segment. They were enhanced year-over-year with the addition of over 2000 new megawatts spread out in several parts of the world. The operating margin as a percentage of sales increased this quarter and was stronger at 42% and improved with a diverse mix of plans including those in Chile, Northern Ireland, Hungary, Pakistan and China. In addition to that we had better than segment average margins from new business including Ironwood in US, [Kabutae] in Africa and Haripur in Asia. Those margin improvements were offset in part by two businesses primarily the operations of Tiete in Brazil where the margin was down due to lower demand resulting from the lingering effects of power rationing and from Thames in Connecticut where we have a contractual decrease in the prices in 2002. As a result, an earnings before tax in contract generation segment was $176 million for the quarter that's 42% of the total for the first quarter of 2002. In the competitive supply business, which you remember is both wholesale and retail, revenues for the segment were $737 million and represented 27% of the revenues for the quarter. The growth year-over-year was about 6% and was driven primarily by significant increase with NewEnergy, our competitive retail supplier of commercial and industrial electricity to customers. The operating margin also improved during the quarter particularly for NewEnergy with an operating margin of 17%. That's primarily due to the improvements at NewEnergy. They were [outlayed] slightly by lower competitive wholesale electricity prices in some regions particularly due to the devaluation of the peso in Argentina, a mild winter in the Northeastern US, and lower prices created by excess generating capacity in Great Britain. As a result and notwithstanding the role of wholesale prices in several regions, competitive supply with the strength of NewEnergy generated $60 million of earnings before tax or about 14% of the total for 2002. The large utility segment which represents are five large integrated utilities - IPALCO, CILCO, Electropaulo, EDC and our equity investments [_____]. Revenues for that segment were $975 million representing about 36% of the total for the quarter. The significant increase is due to the inclusion of Electropaulo, which generated an overall increase of 39% year-on-year. Mild weather, particularly with respect to the North America large utilities dampened the revenue results for those businesses. The operating margin was 26% for the first quarter 2002 and benefited from improvements at IPALCO year-over-year resulting from cost reduction and efficiency improvements since our acquisition in March of 2001. On an overall basis, large utilities generated $140 million of income before tax; that is 34% of the total for the first quarter in 2002, down from $242 million in the previous year. The reduction in the first quarter was also from reduced contributions after associated interest costs from Electropaulo and [Somaig] that arose primarily from the reduced demand coming from power rationing in Brazil through the mid March of 2002. In the growth distribution business, we showed significant improvement in profitability during the quarter. For the first quarter revenues were $366 million, about 13% of our total for the quarter. The operating margin was 22% and showed growing strength and improvement across most of the segments, particularly at businesses including [_____] but they were offset by reductions from those in the Argentine businesses primarily due to the effects of the devaluation and the economic turmoil. As a result, growth distribution generated $43 million of earnings before tax or about 10% for the first quarter of 2002. That's a significant increase from an about breakeven in the first quarter of 2001. Our top ten businesses for the quarter contributed 53% to the revenue line and overall 68% earnings before tax for the first quarter. Those businesses were represented by IPALCO, EDC and Electropaulo from the large utility segments. Shady Point, [Promisao], NewEnergy, [_____], Kilroot in Northern Ireland, our plants in Pakistan and Hawaii. Going to net income, we reported net income after discontinued operation of $0.30 a share before the goodwill charge which I will talk about in a minute. The net $0.06 reduction from $0.36 consists of several components. We had net transaction losses of $0.05 for the quarter comprised of losses - a small loss in Brazil, a large loss of $0.15 related to those big businesses in Argentina. For both countries the functional currency is the local currency and it's also a gain related to Venezuela where the functional currency is the dollar. We also had a loss in the sale of our investment in the shares of [_____] of $0.09 that generated proceeds of about $90 million for EDC and finally there was a mark-to-market gain under SFAS 133 associated with the natural gas contract in Great Britain. This continued operations this quarter consists primarily of our rollout of the Fifoots Point in Great Britain but suffered from low wholesale prices there over the course of the last year. We also recorded a cumulative effect charge for the write off the goodwill, that charge is $0.88 a share or $473 million after tax, and this is primarily associated with our acquired businesses in Argentina, also related to [Promisao] in Brazil and a couple of smaller businesses in Columbia. As I think most people know this is a prescribed change in mechanics of goodwill and it does not have any effect on our cash or our liquidity for the quarter. So as a result 2002 first quarter net income before the accounting charge was $0.30 a share. That compares favorably with $0.23 a share on the same basis for 2001. As we mentioned in the press release related to the rest of 2002, our current expectations for the year range from $1.35 to $1.45. I believe this is generally in the [ballpark] and consistent with current Street consensus. This range for us represents reduction from our previous guidance primarily related to the estimated impacts from some decisions that were taking with respect to improving liquidity particularly adding project financing or financing of additional businesses including Puerto Rico, which we will talk about it in a minute. The effect of the estimated potential operating losses of that company's business in Argentina; previously we had excluded that impact from our guidance. We continue to expect lower pricing in wholesale [merchant] markets in several parts of our portfolio. If those prices do recover we see ourselves improving and doing better. The assumptions and sensitivities that go into that are generally consistent with those we have given you over the last several months and so there are, at this point, no significant changes to those numbers. As we look out and go through the five-year growth rate, we would like particularly of our movement, as Dennis mentioned, to continue to strengthen our balance sheet in [the level]. We expect our five-year average growth rate to be toward the lower end of the range that we have given which was 15% to 19%. Looking forward also at the quarters for 2002, we would see the second quarter generally being our lowest with the third and fourth recovering given the nature of peak pricing in the summer in the US as well as some of our South American businesses later in the year. We would see that range of about 14% to 17% of the year for the second quarter, about 26% to 30% for the third quarter, and the same range of 26% to 30% for the fourth quarter. I would like to spend a little bit of time on cash and liquidity. Our parent company operating cash flow is on target with our previous forecast for both the quarter and for the rest of 2002. I would like to spend a little bit of time on cash and liquidity. Our parent company operating cash flow is on target with our previous forecast for both the quarter and for the rest of 2002. For the 12 months ended March 31, 2002 parent operating cash flow, which is the dividend received from operating businesses, was up 36% to a total of $1.3 billion. For the quarter parent operating cash flow grew by approximately $144 million year-over-year up to $323 million - that is an 80% increase over 2001. The significant growth was caused by the addition of an IPALCO, increased cash flows from Lal Pir and Pak Gen, [_____] Beaver Valley and they were also in part by decreased dividends from Argentina and our Drax facility in Great Britain. As we go through the year so for to date, we have received just a little over one-third of the dividends from our [prospective] top 10 contributors for 2002. We continued to expect to be on target with our previous 2002 forecast for both operating cash flow and overall liquidity. At the end of the quarter, consolidated cash balance was about $1.3 billion and of that amount $250 million is parent cash balance. And since the quarter ended, the parent's liquidity has grown to approximately $365 million on an overall basis. These amount exclude any proceeds that we except from additional financing expected to occur in the second quarter 2002 and represent no additional proceeds to date from asset sales. Looking forward to 2003, we expect parent operating cash flow to be in the range of approximately $1.2-$1.4 billion. During that same period, our committed parent investments are currently forecasted to be less than $200 million. We do have significant scheduled maturities of parent company debt in 2003 and those include an acquisition loan associated with our investment in EDC. That amount totals about $1.8 billion over the course of 2003. That includes an $850 million associated with our facility. We expect to utilize a accommodation of our free cash flow, asset sale proceeds, refinancing efforts to primarily provide a source for refinancing and payment of these obligations. We would expect over the course of 2003 to reduce those parent obligations by about $500 million. Our refinancing efforts are expected to be on reasonable terms and we are encouraged by what we have seen, what we have heard, and by our experience in the past, and we have significant availability over the years 2004 to 2006 and our parent debt schedules and we expect to make those refinancing and those payments without any difficulty in 2003. I would like to spend few minutes on our activities and accomplishments for the last several months. Early in the quarter, we announced a change in refinement of the organization, as Dennis mentioned. The addition of COOs covering global operations but also the expansion into the four business lines that we talked about earlier, and a couple of additional offices at the corporate level focused primarily on reducing operating costs around the company and improving returns of our lesser performing businesses. We also announced the directional focus with reducing our lines in general and need for access to the capital markets and a strong move to make AES financially more flexible and stronger with a firmer and more stronger balance sheet. What this means to us in the shorter term is increased focus and scrutiny of operations designed to make us even better operators and as Dennis mentioned, that is an aspect of our business that we feel has a particular competitive advantage for us especially as we are operate in difficult locations. We are also looking to increase the amount, predictability, and dependability of our internally generated cash flows of which we have had reasonable success here during the first quarter and looking forward. We are working to enhance our liquidity and extend some of our corporate maturities. In the longer term, we will concentrate on reducing the earnings and cash flow volatility in some of our businesses and focus particularly on reducing the volatility for our merchant-oriented businesses in the competitive supply segment as well as the volatility associated with currency fluctuations, in particular, those associated with some of our businesses in South America. We are looking to decrease the leverage, particularly of the parent company, and generate a more conservative balance sheet over the long-term. Reducing our sensitivity earnings and cash flow volatility and strengthening the balance sheet will be implemented over time through several means and these will probably include things like improved cash flows from operations, hedging additional aspects of the more volatile businesses, selling some of the non-core assets within certain businesses as well as opportunistic sales of certain businesses or portions of our businesses, to look to lengthen the debt maturities in some of our subsidiaries as well as [delivering] again particularly at the corporate level in smoothening out these maturities as well as substantial in the future of issuing equity in that process. We are also looking at the longer term. In general, the process of reducing volatility across the portfolio in reaching our ultimate balance sheet goals will take us several years to complete although we expect to continue and make immeasurable progress and will keep you informed of that progress. We won't proceed with any particular transaction unless we feel it is the best interest of AES. I say that because there has been particular attention paid to the statement of our lightening up in South America as well as merchant generation and asset sales. In some cases, it is possible that the wrong impression was given and our intentions were not correctly understood. As I mentioned, our comments on lightening up our long-term objective is to maintain diversification in our portfolio and over time we will achieve this to additional growth in other parts of the world or through the sales of some of our businesses on an opportunistic basis. Just to be clear though we have not set specific limits for those reasons and we expect it lightening up and some of the reasons would occur over longer period of time. Although many people have approached us and have an interest in purchasing several of our assets, we are not interested in a massive divestiture and will only consider selling assets that no longer really fit our long-term strategic objectives. Over the next several years, we might opportunistically consider the sale of interests in some of our businesses with a clear preference for selling minorities. We will only do so when we receive full value of those assets and when such sales will be consistent with our long-term plans. But we also intend to remain global power company, as Dennis mentioned, and will be focussing on improving our competitive advantage in operations and also increasing our financial strength and improving our balance sheet flexibility. The only businesses that we have currently decided to sell are [______] and we will evaluate the strategic fate of other businesses in a thoughtful and orderly way. After that has been accomplished we will decide what, if any, businesses we will seek to divest and how are we to adjust those other strategic initiatives. Over the course of last several months, we have accomplished several important milestones and are approaching completeness on a few others. We successfully have achieved our announced goal of reducing anticipated parent level capital investments by $500 million for 2002. In addition, we anticipate that we will able to accomplish further reductions as we get closer to the end of the year. We have reconfigured and extended the holding company debt of Electropaulo with beyond EDS to extend about 50% of those maturities by over a year and are continuing to work to extend the remaining amounts further with work towards final documentation and completion by the end of May. Our cost cutting effects on the operating side have yielded significant anticipated savings of over $100 million and are approaching $200 million as we go to the quarter in terms of our expectations. We expected to continue to improve that rate of savings but not all will have immediate earnings impacts. With the tremendous efforts of AES people around the world, we have also increased our confidence level with respect to our anticipated operating cash flows and as I mentioned, we remain on-target or slightly ahead of target with respect to our anticipated parent operating cash flow for the year. Regarding the sales of Silk Road and [______] they are both proceeding well. With respect to Silk Road we have received final bids and they meet our expectations. However, at this point, we cannot make any further comments. We expect to complete additional financing related to AES Puerto Rico and when funded in the near term, it should result in net proceeds to AES of approximately $200 million and then with those items as well as other improvements in operating cash flow over the next 12 months, we expect to have a liquidity correction of about a billion dollars after paying our scheduled debt maturities over that period of time prior to our refinancing of the $850 million revolver during the later part of first quarter of 2003. Regarding our announced sale of minority interest in IPALCO, we have decided not to pursue it. With our better-than-anticipated results in cash flow, financing, and cost savings we are no longer going forward with this option. I have one last note on behalf of Ken Woodcock and our Investor Relations group. We did recently complete an investor survey and as a result we have tried to lay out some more information in detail in this release than we had previously. Hopefully that has been helpful. We continued to be committed to enhancing transparency in working with you on that as we look forward. I am not saying we will able to provide every last detail or else that would be an information that might be sensitive for competitive or proprietary reasons and sometimes we have to strike a difficult balance, but we will do our best. We will also be conducting additional surveys in the near future and if you would like to participate please call Ken or [Sandra Ross] and they will include your name on the list of those who might be called for that process. We do value your input and will do everything possible we can to meet your needs. So with that, we will turn back over to Dennis.

I only have one other note that we have our shareholders' meeting starting this morning and so we have to end this call at 9:15 and so, we will go right now to questions.

Thank you ladies and gentlemen. If you would like to register a question, please press the '1' followed by the '4' on your telephone. You will hear a three-tone prompt acknowledging your request. If your question has been answered and you would like to withdraw that request, you may do so by pressing '13'. If you are using a speakerphone, please lift your handset before entering the numbers. One moment please for the first question. Andy Redi] from [Bear Wagner]. Please go ahead.

ANDY REDI]: Hi. Good morning guys. I apologize in the beginning for asking this question.

ANDY REDI]: Okay, thank you very much.

Our next question comes from Elizabeth A. Parrella of Merrill Lynch. Please go ahead.

Yes. Thank you. A couple of questions on just your liquidity comments. Barry, I know you had indicated that you are still very comfortable with the forecast. Just wanted to refresh. You are looking at parent company operating cash flow $1.25 billion for this year. Have you increased that or are you just indicating that you feel more confident of being able to hit it?

At this point, I think we feel more confident. We did actually do slightly better than we expected in the first quarter. Our net liquidity is about $30-40 million better than we anticipated going into that period of time. So, at this point, I think we are sticking with our estimates and we feel more confident.

The liquidity position is about $1 billion. Was that supposed to be a year-end 2002 forecast?

We are really looking forward to the first quarter of 2003 up to the point of renewal of the revolver.

That include proceeds from asset sales?

Yes. It does include some proceeds from asset sales.

Also, two quick questions on the...if we could get may be an update just on how you see things in Argentina at this point in terms of restructuring operations there and is it possible to talk about what the loss was on an operating basis from your Argentina businesses in the quarter?

Let me go first on the loss and then we will turn it to [______] on the environment. In one clarification on the point that you made on the liquidity, it does include only the anticipated proceeds from asset sales that we have announced, not additional proceeds. On an operating basis, we had a slight loss from Argentina in the neighborhood of about a penny or so before the foreign currency losses that I have mentioned. The foreign currency transactions losses were significant in the quarter in Argentina.

Generally speaking as you probably know from the headlines yesterday, in the politics in Argentina and the instability in the political environment that is driving the economy right now including the electricity sector and what we saw in the first quarter and generally think we will see for the rest of year with the businesses is from an operating cash flow basis, the businesses are generally positive both on the distribution and generation side although the cash has obviously been depressed by the actions that the government took in January which had the effect of freezing essentially all the [_____] on the distribution side of the business and artificially depressing the prices for electricity on the wholesale side. These were offset by the effect of that [pacification] or freeze on the cost side for both the distribution companies and generation companies. So it puts the business in a position where they have cash to continue their operations but not really the ability in any manner to achieve anything remotely like the profitability that businesses had in the past. So, the announcement from the government in January was that of temporary measures that is expected to last through the end of June, I think our expectations that will last further into the year but it is hazardous at this point to really predict how the sector will play out until we get more clarity on the politics in the country.

Once then] loss or thereabouts for the quarter a decent number to be assuming going forward until you get clarity on the restructuring or whether you might discontinue some of these businesses?

It may be a little too precise given that you know the things are changing as we go forward and we tried to include our [best] guess that in our forecast which is one of the reason that we have brought the range to where it is. So, it is not too far off but you know it is kind of a daily confusion to some extent.

One last question. You had mentioned Electropaulo as a holding company, debt being reconstructed. Is it possible to update us on progress in terms of some of the operating company maturities for some of the bigger Latin businesses this year - Electropaulo, Sul - what is the progress in terms of being able to handle at business unit level?

I think that Electropaulo is probably the one that we are putting the most focus on right now and they are in the the process now of refinancing some maturities which will come due in third and fourth quarter. But everything that we are seeing right now in the market is ...we expect we will be able to refinance those bad debts.

Thank you.

The other piece to liquidity of Electropaulo, which is very critical is the rationing of loans which have been delayed. With the recent passage of the second order down in Brazil which approves the rationing loans, we expect that we will be able to obtain those now. There is no more legislative action needed to obtain rational loans. That is something in the order of $400 million and additional [comments] to Electropaulo which is a key part of that.

And will we see that shortly?

We are guessing in the next month or so.

Thank you.

Our next question comes from [Greg Gordan] of Goldman Sachs. Please go ahead.

GREG GORDAN]: Thanks. Barry just get some clarification about in the reduction in the annual earnings guidance comes from three key items that inclusion of [_____] in Argentina and you have said at this point that you have made [_____] but it is hard to give a firm estimate. The incremental project financing which improves liquidity but obviously depresses net income, and lower UK pricing. Is that a fair recap?

The first two items have more of an impact than continued lower pricing. But the pricing is more of continued low pricing in Great Britain and the U.S. in merchant markets. So we are not anticipating that they are going to rebound. So as I mentioned if they do our results will improve. We are not expecting significant improvement in those numbers.

GREG GORDAN]: As far as the other major components of your businesses are concerned those are the areas where you are seeing the most significant differential from your previous guidance?

That is correct.

GREG GORDAN]: Great. And then just on the process of identifying and executing asset sales, it feels from your comments like you are comfortable enough with your sort of ongoing liquidity and the cash flow coming in from the asset sales you have announced combined with the body language that you are getting from banks and lenders that you have a significant enough liquidity buffer not just this year but on an ongoing basis to the point where you do not feel like you are being forced to the market with assets at prices that would be below what you believe would be fair value? Is that a fair statement?

You did that well. Obviously people know that the market is not great for us right now. Also we have four business segments and we will continue to evaluate how our businesses fit into that. But from a liquidity perspective you are absolutely correct. We are not in a position where we feel like we need to do significant asset sales in the short term.

PAUL T. HANRAHAN]: Asset sales now on are going to be you know consistent and tied up with how we view the long-term features in the company and the long-term plans that is how we are making those decisions.

Can I just clarify one thing with respect to the change in the earnings guidance. The change in Argentina is associated with the fact that Argentina was not included in our original guidance than it is now as opposed to specific change in Argentina.

GREG JORDAN]: Okay and thanks very much guys.

Kevin Miller] from UBS, please go ahead.

KEVIN MILLER]: Good morning. First of all Barry, I was wondering if you can give us an update on the availability into the bank facility. Secondly I was hoping that you can refresh us because the equity component of the capital structure continues to go down slightly, what is the capitalization covenant in that bank facility?

Yeah. Today we have $340 million of cash and revolver availability of about $22 million. So a total liquidity of $365 million as we sit here today. The capitalization covenant at the end of the year had over $2 billion of [cushion] in it with respect to tangible net worth. And so the goodwill write off will have some affect on that. It is also likely that in the second quarter given our sale of [_____] we would probably end up treating [_____] going forward as a pooling. That will have a positive impact. We treat it as a purchase going out which will also have a positive impact on equity. So there are no problems with that current covenant.

GREG JORDAN]: Thank you.

Paddel Shansky] from Bank of New York. Please go ahead.

PADDEL SHANSKY]: Yes good morning. I had a couple of questions. First of all regarding the credit facility of the parent, have you begun discussions with the banks and if you have, can you share any of those thoughts with us?

Yeah. We have had preliminary discussions with our bank group and that renewal is a little under a year off. We have started that process and we are encouraged that our cash flows are strong. We have done this and went through this several times and I think we feel pretty confident about that whole process at this point.

PADDEL SHANSKY]: Could you place a probability, I know it is kind of early, but may be a probability on whether or the renewal of that bank loan could be secured?

I would not place the probability on that at this point. Obviously that would be our objective at this point. Our cash flows are significant.

PADDEL SHANSKY]: Okay. You had mentioned the possible issuance of common equity over the next couple of years. Could you put a timing on that for us?

It is little too early for that. It is really focussed on the fact that we are committed over the next several years to strengthen the balance sheet and [deliver] and that would be a component over time of that process.

PADDEL SHANSKY]: Okay. So it does not sound like it is going to happen this year?

At this point, we are not going to be specific about timing.

PADDEL SHANSKY]: All right. As far as exceeding your dividend issued to the parent, could you go us through for us where exactly basically the [positive] surprises occurred?

As I mentioned before the improvements quarter-over-quarter came from places like Lal Pir and our operations in Hungary, IPALCO, Kilroot in Northern Island and Beaver Valley. On a yearly basis going back to the $1.3 billion the positives were up obviously from IPALCO as a new business in our mix as well as improvements from [_____] and impacted on an annual basis. So those are the primary pieces.

For some of those businesses, obviously, it was expected that they would contribute pretty strongly this dividend. So I guess businesses like Kilroot and Beaver Valley might have been a little more positive than you expected.

PADDEL SHANSKY]: I do not want to take of all the time. Just one other question. Regarding the Drax situation, I know there has been a lot of problems over there. I wonder if you could just briefly describe what is happening over there in terms of the situation. Was it the subordinated bonds? What is happening to the attempt to correct the situation?

Obviously, the prices are down in the U.K. I would not necessarily say that there have been a lot of problems with Drax. We clearly have the issues related to the ability to get sufficient insurance under the project finance agreement. That has temporarily held up the cash that comes out of the senior bond structure into the subordinated bond structure. We are in the process of discussing that with our lenders and expect that we will positively come to a resolution that will allow us to come out and pay the interest. The cash is clearly there; Drax has more than sufficient cash to pay the interest and higher dividends than we would have expected from Drax. But we need to get that finance agreement straightened out, and with the events of September we are still trying to clear up the insurance aspect of that. I think we fully expect that will get solved and won't be an issue for very long.

PADDEL SHANSKY]: Could you put a timing on that for us?

It is a month or two. These are large bank groups so it may take a little bit of time.

PADDEL SHANSKY]: Okay. Thank you.

Jeff Berg] from [Medico Capital]. Please go ahead.

JEFF BERG]: Good morning. I had a couple of balance sheet-related questions, most notably two line items and one is in current assets and the other in other assets. Prepaid expenses was up about a $0.5 billion sequentially and then the other long-term asset line item was up $2 billion sequentially. My question is are you guys capitalizing any cost that you have not done in the past or you capitalizing any cost more aggressively than you have in the past?

No primarily related the consolidation of Electropaulo. As Paul mentioned we have these in part of the rational deferrals which show up on the balance sheet of Electropaulo and so Electropaulo has a significant balance sheet of about $5 billion of total assets. So almost all of that change is related to the inclusion of the Electropaulo this quarter.

JEFF BERG]: Okay would there be a kind of similar answer to the increases in term of current liability line items like accounts payable was up half a billion sequentially accrued and other liabilities are up about $300 million. Would that also be related to Electropaulo.

Yes exactly primarily.

JEFF BERG]: Okay and then one last balance sheet question. The other long-term liability line item is up a $1.5 billion sequentially. Is that also Electropaulo?

Yes.

JEFF BERG]: Thank you.

The next question comes from [Peter Quinn] from J.P. Morgan. Please go ahead.

PETER QUINN]: Couple more questions on the balance sheet if I could. Could you just address the increase in the loss of other comprehensive income of about $970 million as well as the increase in recourse debt of about $375 million since year-end?

Yeah. The recourse debt would be the revolver increase over the course of quarter. The other comprehensive income is currency translation adjustment related to both Argentina and a little bit related to Brazil, but primarily Argentina.

PETER QUINN]: Okay and could you just explain why are you are joining more in the bank revolver if the parent operating cash flow was the strongest as it was during the quarter?

Well, in part we have drawn and to maintain liquidity in that process and make sure that during the period. Particularly a month and a half ago when there were some threats on that liquidity or proceed threats on that liquidity we felt it is important to make sure that we were as liquid as we could be. So we intend to pay it back.

PETER QUINN]: Okay and just one more question if I could. The parent operating cash for which again was very strong. Can you tell us how much of that was on a regular recurring quarterly basis and how much was a one-time shot to the parent?

It varies quarter by quarter. It does not just come in flat every quarter. We do have seasonality in those businesses. It is defined as operating cash flow from those businesses. It does not include the proceeds of assets sales and other things like that. So it is primarily from the operations of the business. It does not mean that the businesses would not have working capital changes that would help improve or decrease their ability to make dividends but it is primarily operating cash flows of the business. I think if you follow the trend in that cash flow line along with the trend in our earnings although there tends to be some timing differences particularly kind of quarter-to-quarter and to some extent delayed on a cash flow basis, but those two track pretty well.

PETER QUINN]: Okay. Thank you.

Ali Agha from Banc of America Securities. Please go ahead.

Thank you. Couple of questions. One, Barry could you update us on the thinking with regards to goodwill impairment charges in the future? How should we think about that and what should we expect over the rest of the year?

At this point Ali we have taken the goodwill charges that we think was necessary associated with the adoption of the principle. So we do not expect any additional goodwill impairments. Obviously, you know it is a different process now that we go through and we will have to evaluate our businesses as we go forward. But at this point we do not expect any additional write-offs associated with goodwill.

How much of that was Argentina?

Half.

Okay. Within your $1.35-1.45 sort of guidance for the year, could you update us on what your currency assumptions are for Brazil, Venezuela, and Argentina?

For the year we were at the kind of the ending rates. So you can get to the average as you like but for Brazil it is 2.6, for Argentina it is 4 (I am sorry to say), and Venezuela it is [1250].

Those are year-end numbers?

We have obviously assumed an average over a period of time. They won't be smooth but that is how we have kind of assume them in the course of our expectations.

Okay. Also just within the March quarter, Barry, from an operating basis could you give us a sense of what net currency moves did to the numbers?

Well, on a Brazil basis particularly Electropaulo the net was not that significant. We did have some reductions associated with Light because we only held it for the first part of January and a little part of February. So there were some small impacts from Light on Brazil. Obviously the currency effects were negative in Argentina although it affected the operating revenues about as much as it affected the margin. So on a percentage basis the margins declined relatively consistently with the decline in the currency. Then in Venezuela, obviously we have had some impact but we have also have a fairly significant component of the revenues stream in dollars. So there were not that significant in Venezuela. It is also to important to mention in Venezuela that I think you have noticed we did get a 7.5% rate increase a few weeks ago that was put in place on an interim basis after the beginning of the year. So that had some effect going forward.

Within the $0.30 number currency was - maybe a penny or so - was not a factor?

A couple of things were negative, Ali.

Separately where you have talked a couple of times now about de-leveraging and dealing up the balance sheet etc., do you have some kind of an optimal debt to GAAP structure now in your mind and where it needs to be?

We think about it in a couple of ways. One is first on parent level basis and clearly there is a more optimal capital structure at the parent level. Currently we run about 40-50% debt at the parent level. I would see that in a longer-term period being closer to 15-25% range. That should have a significant affect over the term on our credit rating and overall strengthening on the balance sheet. I think that at the project level it does not really lend itself to an overall target. Our targets really are more focussed on the leverage of individual businesses and making sure that we have the appropriate kind of long-term or intermediate-term debt associated with those businesses. As long as the contract generation business is structured in the right direction and we can match up those maturities, we are little more focussed on that kind of structure. It does differ by business line; obviously there will be higher leverage and longer-term on the longer-term contracts businesses and lower leverage on the merchant side of the equation. I think about the target mostly at the parent level. We think about it more in terms of amortization structure and term along business line...

Last question Barry. In your last call when you had laid out your quarterly budget for liquidity - just clarifying the points you made - you had net liquidity budgeted for $257 million at the end of the March quarter. If I heard you correctly, you were saying the number was about $30-40 million higher than that?

We are right at about $290 million.

Okay. The capital expenditure that you had laid out over the four quarters - is that still the schedule?

Yes. It may change a little bit in terms of timing but we are encouraged that we have actually been able to kind of hit that target and we are hopeful that as we move through the year we will do a little better than that. There has been a lot of work by a lot of people with still a lot more to go, but it has been a fairly significant and impressive effort around the company.

Thank you.

Next question from [Peter Monico] from [Credit Investment]. Please go ahead.

PETER MONICO]: Good morning. Thank you all for your time. Why would you not think further significant write-off in Argentina? If I understood you correctly you believe you are not. But if you are inaccurate about that what is the total investment there now and how should we size up the potential write-offs ahead there? What would then be the impact on the tangible net worth covenant that you currently have a comfort level with?

First of all what we were talking about was goodwill write-off. So we have written off all the goodwill associated with Argentina. There does remain an asset balance. The gross investment prior to the goodwill write-off was a little over $1 billion. Now it is down in the neighborhood of closer to $700-750 million. In addition to that, a portion of the investment has already effectively reduced our equity balance by the effect of the currency translation adjustment in this number. If Argentina were to go completely away - which we do not anticipate - our generating businesses and distribution businesses, we believe, will generate profits with some help on the tariff side. We will also be reasonable. We would not expect to lose all of that investment. But if we did, about half of that or so would still end up reducing equity if we wrote the whole thing off - another $300 million or so. But it would not have a significant effect on the net equity position or the covenant.

PETER MONICO]: I understand. Thank you.

James L. Dobson from Deutsche Banc Alex. Brown Inc. Please go ahead.

Hi! Thanks. Barry, couple of questions. On Electropaulo could you tell us what exactly or remind us what the refinancing in 2002 is?

For holding companies right now the refinancing for 2002 has been restructured. Basically the $170 million, which itself is a loan, has been rolled over to October 2002 - the principle amount. The only [treatment] we have to pay down that debt is a minimum payment of $85 million, although any dividends we would get would be used against that. We would expect that amount to be higher. But that is the total principle repayment amount for 2002.

Great. Then, switching to Venezuela on [EDC] Barry indicated [that as the] best performing business. I am just wondering if you could give us an update from a business perspective as to how things are going out there in the light of all the political turmoil out there.

Talking to the people who are up here this week, things have returned to normalcy there. We are still encouraged by the situation in Venezuela. We had little bit of an upset with respect to reduced demand for the week but not a big impact on cash flows or earnings. The most promising thing about Venezuela is the government has continued to live up to the commitments and obligations - the legal and regulatory obligations. As Barry mentioned the 7.5% [_____] increase certainly brings us to a 11% increase and 7.5% really came earlier than expected. It is an interim increase and will in effect reduce the amount of increase we need in the July reset date which makes it more palatable to obtaining that increase when it is due. So we are encouraged.

Great. In the press release you talked about being ahead of your goal on reducing operating costs over the target of $100 million for 2002. I am wondering if you could give us a sense of where you got to in first quarter? Do you expect that to continue to accelerate in 2002 or is that Q1 will be sort of a good run rate? How should we be thinking about that?

For the most part, a lot of those costs actually do not show up in Q1 yet because in cost cutting sometimes you have to pay something to get it improved in the future. So the $100 million (hopefully approaching 200 million) is going to take us another 12 months to realize on a run-rate basis as we go through the course of the year. We have not seen a lot of impacts show through the reported numbers yet. The effect of some of it in the short term may be slightly negative but it will take a couple more quarters to see it at a good run rate basis before that number start showing up quarter-by-quarter.

But if we say spending the money in sort of being able to check it off your lift sort of cost savings achieved would you be willing to tell us how much of that $100 million - percentage wise - is "achieved" that you are reasonably expecting it will come 12 months from now?

Yeah. We feel 100% confident that over the next 12 months we will get to that $100 million or slightly more. So I am a little hesitant to say how it comes quarter-by-quarter. John, do you want to address that?

There are really a few elements to cost cutting that I would like to talk about a little bit. One of them is the longer-term, ongoing cost cutting that we have been going through. Just to give you an example on people reductions, over the past 12 months we have had a reduction of about 4000 people worldwide. That is about 10% of our total employment. These are coming from places like [Kelvin] in South Africa, Electropaulo, [Senale], Ukraine, and our coal mine in Hungary. In addition to that we expect another 2500 people in the next 12 months. So we have an ongoing effort to reduce costs. We have always had this. Those are budgeted numbers and they will continue. At the $100-200 million that Barry referred to was unanticipated and it came out of the result of the reduction in the $500 million reduction in investments for this year. We did not anticipate that going into the year. As a result we reduced our development group around the world by about 200 people. Obviously there are some severance costs involved in that but that 200-person reduction will give us about 20% of the $200 million savings. In addition to that another 20% will come from fuel price and supply cost savings. The other 60% will probably be maintenance contractors and [_____] schedules. As Barry mentioned we think we have $100 million plus in our pockets already. The $200 million is probably achievable.

__________]: Great. Thanks so much.

Next question comes from [Danielle Sythes] with Salomon Smith Barney. Please go ahead.

DANIELLE SYTHES]: Hello! I just was wondering if you could bring yourself up-to-date on the negotiation regarding pension amortization in [the sales]? Could you let us know what happened there?

I think the negotiations essentially on amortization are complete. The accounting for that has been agreed. So I think what you are seeing in the balance sheet is all agreed. I think that the charge on an ongoing basis is $300 million per year. So that is all after the negotiation is completed.

DANIELLE SYTHES]: Okay great. Do you have a sense of the rate increase in Venezuela in July or is it still being completed?

It will depend on where things stand at the time we get there in July. I would say right now the expectation for the incremental increase will be somewhere between 10-14%.

DANIELLE SYTHES]: Great. Thank you so much.

The next question comes from [Angela Gordon].

ANGELA GORDON]: Hi! I just wanted to get some additional color on the mark-to-market gain that you recognized on the natural gas contracts. Is that [charging] up as an ineffective portion of the cash flow hedge or could you give us some color about that given the size and the type of business that you usually do. I would think that most of your stocks are usually pulled through as a cash flow hedge.

That is correct. It is a fair value contract. That is a gas contract associated with our Barry plant in the UK where we have amended the contract so that effectively we can deliver gas or use it to make electricity in the facility. So that turns it into a fair value derivative at this point on the SFAS 133. So it is different than most of what we do on a contract basis and so it does end up in the 133 and mark-to-market.

ANGELA GORDON]: So should we expect to see significant [slings] struck from that one contract on an ongoing basis as you see in volatility in the UK gas market?

There will be obviously be some [slings]. Obviously that is the nature of the mark-to-market aspect. We do not think it will that significant given the nature of that contract and the provisions of that arrangement. But clearly that will change and the valuation of those things is not particularly always precise. So it is one of the reasons we try to show it at least separately to give you a sense of where that is coming from.

ANGELA GORDON]: That is very helpful. One other question on the U.K. Given that we are currently seeing prices in the £13 level versus something significantly higher than that, even [_____] depressed over the last couple of months. Are you building into your current guidance that things are going to stabilize around this current spot level or do you think that we are going to be seeing some improvement past that level?

J. STUART RYAN]: Our guidance is consistent with the existing forward curves between now and the end of the year which does not really show any significant improvement in prices relative to the spot price today.

ANGELA GORDON]: Thanks very much.

Jayson Weise] from Deutsch Bank, please go ahead.

JAYSON WEISE]: I had a followup question on the Drax situation. I just wanted to know if there are any ratings, triggers or anything within the [TXU] contract there. If this insurance situation would not be worked out, is there any risk there of a ratings trigger in the [TXU] agreement?

There is not a ratings trigger on the [TXU] agreement with respect to insurance and from the insurance provision.

JAYSON WEISE]: If you were to be downgraded as stemming from that whole situation there is no risk but just a general ratings risk there at all?

There is a trigger at the corporate level with respect to putting up a £75 million seed but it is a double trigger and it only happens if Drax is downgraded and AES is downgraded by two agencies. That plus any other triggers that we have at AES are all in some total well under our liquidity position. So they would not cause any difficulties for us.

JAYSON WEISE]: Okay, thank you.

George Shay] from [_____], please go ahead.

GEORGE SHAY]: For those of us who are on the east coast, I like the afternoon calls better. Anyway, having said that, what was the assumption for the [Bolivia] for the rest of the year?

We have it at the end of the year at [1250].

GEORGE SHAY]: Okay. On the 15-25% structure of the parent and not wanting to sell assets in a hurry is applaudable. Holding off on selling assets and wanting to deliver at the same time do not match up unless you are planning on selling some assets that are over an extended period of years. Is that a good way to look at that?

That is a fair way to look at it. Also over that period of time, we have become fairly significant free cash flow. It is growing and as we have talked about, we have fairly significantly decreased our discretionary parent investments at the parent level. So it really starts with generating free cash flow and the ability to use that to [deliver]. That has a positive effect in both directions. As we have said, there could very well be opportunistic asset sales over that period of time.

GEORGE SHAY]: Right. Again, I applaud the failure to rush to sell a bunch of stuff. I think that is wise.

As we said, we have received final bids on both and they are within our range. But we have not given any specific time period.

GEORGE SHAY]: That is good enough. I recall in January, in Florida, you were all saying that you were targeting $80 million in cost reductions. Now I am hearing $100 million. Was $80 million an external number and $100 million an internal number?

It was in the range of $80-100 million. I think it is a fair way to say it. We started off with an expectation of somewhere in the neighborhood of $0.10 or so per share.

GEORGE SHAY]: It sounds like you feel it pretty good with $100 million and you may go quite a bit above that?

We sure hope so. As far as being a world-class operator, we think this is an area that needs the most work and so we are really pushing hard.

GEORGE SHAY]: Okay, thanks. Keep up the hard work, guys.

Carmel Lou Myer] from [Lima Sales], please go ahead.

CARMEL LOU MYER]: I just wanted to clarify the Drax trigger because I have in my note of a performance guarantee of £170 million and then the separate rating trigger that you talked about - [AES] and Drax downgraded by both agencies. Can you go back and review again the 2003 maturities at the parent level and then if you can also talk about 2002 maturities left this year and when those would be?

Okay. Let us start with the maturities first. In 2002 we have a $300 million maturity in December of 2002. We still have also about a $130 million left in two amortizing payments over the next two quarters of the final piece of what was a [rhino's] loan at the corporate level. So that is all there is in 2002. In 2003 we had the $850 million revolver which we expect to renew in some level in March when it comes due. There is a term loan of $200 million in June of 2003 and another $475 million corporate term loan in August of 2003. And then on the Drax side, the triggers we talked about are triggers that require AES to put up some form of liquidity or collateral. The performance guarantee does not require any form of liquidity or collateral.

CARMEL LOU MYER]: Okay. Thanks.

Andrew Wymer] from [Barnum] Asset Management, please go ahead.

JOHN ROSENFIELD]: It is actually [John Rosenfield]. Excellent progress, guys. The Electropaulo, I am not sure I heard you correctly, but there was a mention of $175 million having been refinanced till October 2002 and a further comment that only $85 million was left to be paid in 2002. Did I misunderstand something?

Hi John! This is Paul Hanrahan. Let me just go through it in a little more detail. Basically the original schedule was $170 million in April of 2002 and another $170 million in October of 2002 and a $170 million in April of 2003. The agreement is that what we will do is we rolled over $170 million of April 2002 to October. So we have $340 million coming due plus interest. What has been agreed is that we would make a minimum payment of $85 million and any remaining amounts plus accrued interest to be rolled over in equal amounts to the two payment dates in April of 2003 and December of 2003. Plus you have maturities in April of 2003 of another $170 million and that would account for the AES [alpha debt]. In addition, we have $330 million that will become due in another holding company which owns Electropaulo called [TransGas]. That is $330 million due in January of 2003 and we have an agreement to extend that to January of 2005 although that is subject to the situation when we get closer to that date. _____] here cannot agree at this point to roll that over. But they put in the agreement that that is something they are intending to do. So essentially that means we have a minimum payment of $85 million this year, the remainder being passed off to 2003, 2004, and 2005 respectively.

JOHN ROSENFIELD]: Thank you. That helps. In the recitation of the assets for sale at this point, one that was talked about in February but I did not hear anything about today. I think NewEnergy is stable?

I think as we also mentioned in the February call, we are sort of stepping back and relooking at our entire competitive supply portfolio and trying to take strategic actions that would reduce the volatility associated with those businesses. So at this point, all things are on the table with respect to those businesses but we have not committed anything at this point. What we have committed to is finding ways that would reduce the volatility associated with those businesses which serves as one way of addressing that.

JOHN ROSENFIELD]: And finally, there has been plenty of news about [Williams] of one sort or another on what goes on in California, I guess, again [Stu], is there any involvement on the part of AES now in potential litigation in California that could be adverse to the company?

Well, we will likely and have already been caught up in a lot of the [third] collateral aspects of litigation coming out of California. So we are involved in litigation now and we are bound to get caught up in additional litigation. However, as you know, we have lost money associated with the run-up in wholesale prices out there and further more, we do not have any contracts with CDWR - the California Department of Water Resources. So we do not think we have any material, financial liability associated with any of those lawsuits but that is saying something different than we will not be a part of those things. We are bound to be caught up in it, in fact are, but at the end of the day we are not going to wind up paying anything material.

JOHN ROSENFIELD]: Good. Thank you. Keep up the good work.

Thanks John.

Andrew Brown] from [General Reed], please go ahead.

ANDREW BROWN]: Thanks guys. I was wondering, at the Drax plant, are there any circumstances under which [Texas Utilities] could cancel their hedging contracts with you?

Like all contracts, there is opportunity for either party to default under those agreements but we certainly are not that position now and do not anticipate being in that position. Theoretical circumstances, though. We do not think there are any practical circumstances.

ANDREW BROWN]: So they would not be able to pay off a certain amount given that the price of gas has moved in the wrong direction for you guys. I do not know. I am just asking.

I understand the question. It is not set up where they have any option of a buyout provision.

ANDREW BROWN]: Okay. Thank you very much.

We will take one more question.

Stuart Vega] from Salomon Smith Barney, please go ahead.

STUART VEGA]: Thank you. In Electropaulo, in 2001, there were a lot of unusual accounting adjustments that came from that agreement in December. I was wondering how much of that continued into the first quarter. I assume there was [rationing] compensation that they also capitalized a portion of their operating costs. Could you comment on that?

What happened at the later part of the year was settling up the provisions of the settlement. I mean the impact and the unusual nature of it is really in 2001 and in 2002, is moving forward under the settlement arrangement which includes the tracking accounts for purchased power [pass-throughs]. It does include the effects of rationing through a portion in March. So there are effects of the settlement. But that is all accurately reflected in the current settlement and the current provisions of principal. I think they have actually changed some of the ways that is being done for [Brazilian] GAAP purposes also to make it consistent with the U.S. GAAP approach.

The thing I would just like to reemphasize is that the fact that this executive order was passed really wrapped up that whole process and it confirmed that all the accounting treatments which we had was in fact correct. So it was confusing, it was complex but it turned out in the end to be exactly right.

STUART VEGA]: Can you tell us how much the rationing compensation was in the first quarter?

For the first two months of this quarter it was [$]180 million. So you are talking about $7 million or so in magnitude. Since rationing is [not] over - [it ended in February] - there should be no additional amounts going forward and demand is in starting to increase back up to normal levels.

STUART VEGA]: Can you tell us how much of the operating costs were capitalized? The increases in nonmanageable costs that were not last in the part of adjustments?

As part of the tracking account?...I do not have that number right now. But we can get it for you.

STUART VEGA]: Okay. Thank you.

Okay.

Let me conclude with the reiteration of our strong desire to be the global power company and our performance this quarter was another big step in achieving that goal. Thank you and goodbye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.